Page 1 :
Introduction to Business, , SP'SP'S, , (Paper-1) (E. Y.B.Com.) (So, , )(Sem-), , MODULE, , II, , 5, Business Environment, , -, , II, , SYNOPSIS, , International, , Environment, , Introduction, Current Trends in the World, International Trading Environment, , World Trade Organisation, Functions, , Objectives, , Trading, , blocs, , Objectives, Important Trading blocs - EU, NAFTA, OPEC, SAARC & ASEAN, , Roll of, , trading Blocs, , and their, , impact on Indian business., Free!!!, , Questions and Answers available with sorateh card, provided, instructions provided for, downloading, , in, , the book. Please, , to

Page 2 :
62, , SP'SP'P, , 4., , Introduction to Business (Paper-1) (E.Y.B.Com ic, , (Sem.1, , Trade agreements, Apart from trading blocs, several countries have entered into various kinds of, , agreements. A trade agreement is any contractual arrangement between countrade, concerning their trade relationships. Trade agreements are either bilateral, involvine, countries, or multilateral involving more than two countries. The agreements ma, limited to certain goods and services or certain types of market entry barriers. Bila, , trade agreements are also referred to as preferential trade agreements. The numherera, bilateral trade agreements notified to the WTO has grown significantly in recent vo-, , years, , Similarly, there has been an increase in number of multilateral trade agreements, St, , agreements are intended to lower trade barriers between participating countries and, , Duch, as a, , consequence, increase the degree of economic integration between the participants, Multilateral trade agreements are considered the most effective way of liberalizing trad., , in, 5., , interdependent global economy., Trade policies of individual countries, , an, , Trade policy defines standards, goals, rules and regulations that pertain to trade relations, between countries. These policies are specific to each country and are tormulated by its, , public officials. Their aim is to boost the nation's international trade. Trade policies als, aim at protecting the domestic industry. The three most common foreign trade policies are, tariffs, non tariffs, and export subsidies., i) Tariffs: Tariffs are barriers imposed on imports. Tariffs raise the price o, imported goods. Different types of tariffs include specific duty, ad valorem duty, speciie, , duty, revenue tariff, anti- dumping duty etc., ii) Non tariffs: These include any measure other than tariffs to restrict imports, These include quota, licensing, regulations regarding product content, quality, standard,, packaging and so on. Quota restricts the quantity of goods imported., iii. Export subsidies: Many governments, provide export subsidy to promote, exports. Export subsidy is a government policy to encourage export of goods. An export, subsidy refers to payment made government to encourage exports of specified products, As a result, it reduces the price paid by, foreign importers., , WORLD TRADE ORGANISATION (WTO), The creation of WTO on January 1, 1995 marked the, biggest reform of international, trade. Though it began its life in 1995, its, is, more, than half a century old. The, origin, Second World War had just ended and General, Agreement on Tariffs and Trade (GATI)|, was created to bring order,, and, fair, security, competition to world trade. GATT Was, founded in 1947 with 23 countries including India. The basic, principle of GATT was to, promote trade without discrimination. The GATT was not an, organization but it was, a legal agreement. WTO, replaced GATT as the world's global trading body in 1995. on, It, the successor of GATT and is the outcome of the, round of negotiations. It wa, Uruguay, created in January 1995 out of GATT because the latter was no, longer able to functo, effectively in the fast changing trade scenario of the 1990's. So GATT, has ceased to be, , separate institution and has become a part of WTO., , WTO is the only global international, with the rules ot t ade, organization, between nations. The WIO which is based in Geneva has dealing, a larger, membership than GA, with the present numbers being 159. India is óne, of the (out of 104) founder, members, the WTO. The purpose of the WTO is to, ensure that global trade commences, smootn, freely and predictably. The WTO creates and embodies the, legal, ground, rules, global trade among member nations and thus offers a, for internatio, system, commerce. It serves a major, purpose as a rule making body for trade, liberalization.ign, the, role, in, plays, of watchdog, the spheres of trade in, trade, in, goods,, services,, toreig, investment,, intellectual, , property rights etc.

Page 3 :
Busiiess, , the, Some of, , ain, , agreements, , of WTO are:, , Agreement on Agriculture (AOA), entation in agriculture trade. It, , The main obicctive, , -, , is to increase marke, for commitments in the area, provides, access, domestic support and export, a, competition., Agreement on Trade In 'Textiles And Clothing (Multi-Fibre Arrangement)- Witn, , this, , or, , agreement quota on textile and clothing has now been abolished., , Agreement on Manutactured Goods- The developed countries agreed to reduce, , tariffs on manutactured goods other than textiles, , by 40%., , Agreement on TRIMs : An Agreement on Trade Related Investment Measures, (TRIMs) calls for treating foreign investments at par with domestic investments., Agreement On TRIPs : Trade Related Intellectual Property Rights (TRIPs) pertain, to, , Patents, , and, , Copyrights., , The agreement, , provides, , for, , granting product pater, , along with process patents to food, medicines, drugs and chemical products., , General Agreement On Trade And Services (GATS)- For the first time,, trade, services ke banking, insurance, travel, maritime transportation, mobility of, , etc., been brought within the ambit of, labour, has, negotiations. GATS provides, multilateral framework of principles and services which should govern trade in, a, , services under conditions of transparency and progressive liberalisation., Functions of WTO, , The functions performed by WTO can be summarized as under, I t administers and, , implementsthemultilateral tradeagreements., , I t provides a forum to its members for multilateral trade negotiations., It resolves trade differences and disputes among member nations through proper, , forums and conciliation mechanisms., It monitors the execution of tariffs and non tariff measures as agreed by, member nations., . I t periodically reviews trade policies of member countries to check whether they, conform to WTO guidelines., It co-operates with other institutions like IMF, IBRD and others involved in, , global economic policy making, I t provides consultancy services to member nations., WTO collects information on import - export trade and on various trade, measures and other trade statistics of member nations., , Objectives of WTO, The basic objective of WTO is to set and enforce rules for international trade. It, , provides provide a forum for negotiating and monitoring further trade liberalization. The, objectives of WTO are:, , Trade Without Discrimination Trade without diserimination through the, , application, , of Most Favoured Nation (MEN), , Principle., , As per MEN clause,, , countries cannot normally discriminate between their trading partners., , and, Raising The Standard Of Living Raising the standard of living and incomes, -, , ensuring full employment of the citizens of its member nations., , Optimum Use of World's Resources- Ensuring optimum use ot worias, resources, , and, thereby, expanding world production and trade of goods, , as well, , as services., , Settlement of Disputes - Settlement of disputes among members through, , consultation, conciliation, and, , procedures., , as, , a, , last, , resort, , through dispute, , settlement

Page 4 :
64, , Introduction to Btusiness, , SP'P', , (Paper-) (F.Y.B.Co.), , (Sem, , Growth of Less Developed Countries (LDCs) -WTO recognises the need, , positive efforts designed to ensure that developing countries especially the Lnfo, secure a better share of growth in international trade., , Protection of Environment - Preserving and protecting the environment of he, world so as to benefit all the nations of the world., Enlargement Of Production And Trade - WTO aims to enlarge production, , and, , trade of goods as well as services., , Employment- WTO aims at generating full employment and increase in effecti., ve, , demand., Tocooperate with other major international economic institutions involved, , global economic management, To encourage open, fair and undistorted, , competition, , Impact of WTO on Indian business/economy, , The World Trade organization was established to deal with all the, major aspects o, international trade and it had far reaching effects not only on India's, foreign trade but als, on its internal, economy. The impact of WTO on India's economy is explained as under:, , Favourable Impact, 1., Growth in merchandize, , exports, , The establishment of the WTO has increased the, countries, exports of, because of reduction in tariff and non-tariff trade barriers. India's developing, merchandise exportshave increased from $ 32 billion (1995) to $ 304.62 billion, (2011-12). As per WTO'SInternational Trade statistics, 2012; in merchandize trade India is the 19» largest, exporter, in the world with a share of 1.7%., 2., Growth in service exports, , The WTO introduced the GATS (General, Agreement On Trade In Services) that, proved beneficial for countries like India. India's service, increased from $ 5 billion, (1995) to $ 146 billion (2012-13). In 2012, India wasexports, amongst top 10 exportersof, commercial services with 3.4% share of world, exports. (software services accounted tor, 45% of India's service, , exports)., , 3., , Agricultural exports, , Reduction of trade barriers and domestic subsidies raise, the, of agricultural, products in international market, India hopes to benefit from this inprice, the form of higher, export earnings from agriculture. This seems to be possible because all, major agriculture, development programmes in India will be exempted from the, of WIO, , provisions, Agreement., 4., Textiles and Clothing, Under The Multi-Fibre, Agreement, developed countries used to impose quota, textile exporting countries. However, the MFA has been, withdrawn w.e.f 2005. This, , largely benefit the textiles sector. It will help the developing countries like Indiawito, , increase the, 5., , export of textiles and clothing., , Foreign Direct Investment, , As per the TRIMs, agreement, restrictions on foreign investment have en, bec, withdrawn by the member nations of the WTO. This, has benefited developing, countrie, by way of foreign direct investment, euro equities and, portfolio investment. In 2011-1, FDI in India spiked 34% to a record, 46.8 billion US $. FDI inflows were, less than $, billion prior to 2005-06., 6., , Multi-lateral rules and discipline, The Uruguay Round, Agreement has, , The most, , important, , strengthened multilateral, , of these relate to anti, , -, , dumping,, , rules and disciplines, subsidies and counteryail1ng

Page 5 :
veS,, , Safeguaras a l a uisputes settlenment. This is, likely, of the international, trading system, , p r e d i c t a b i l i t y, , to ensure, , greater security d, , Lnfavorable Impact, 1., , TRIPs:, , Deatection of intellectual property rights has been, one of the major concerns of, However, these agreements favour, the, multinational, and, a, corporations, hold, ries as they, developed, very large number of, As a member of WT0, India, patents., to, of, has, ly with standards, TRIPs. The, negative impact of agreement on TRIPs on Indian, conomy can be stated as follows:, , W T O, , comply, , Pharmaceutical, , sector- Under, , the Patents Act, 1970, only process patents, we, earn ted chemicals, drugs and medicines. So Indian, pharmaceutical, companies oniy, eded to develop and patent a process to produce and sell that, drug. They were in a, sition to sell quality medicines at low prices both in domestic as, posit, well as in, markets. However, under the agreement on TRIPs, product patents needs tointernational, be granted., , Srant, , to, , This will benefit the MNCs and it is feared that they will increase the prices of medicines, , heavily, keeping them out of reach of poor. Again many Indian pharmaceutical companies, may be closed down or taken over by large MNCs., , ii) Agriculture: The Agreement on TRIPs extends to agriculture through the, patenting of plant varieties. This may have serious implications for Indian agriculture., , Patenting ot plant varieties may transfer all gains in the hands of MNCs who will be in a, position to develop almost all new varieties with the help of their huge financial resources, and expertise., , ii) Microorganisms: The Agreement on TRIPs also extends to Microorganisms as, well. Patenting of micro, , organisms will again benefit large MNCs as they already have, , patents in several areas and will acquire more at a much faster rate., , 2, , TRIMS, , The Agreement on TRIMs also favours developed nations. These agreements provide, tor treatment of foreign investment at par with domestic investment. There are no, , provisions in agreement to formulate international rules for controlling restrictive, business practices of foreign investors. Also, complying with the TRIMs agreement wil1, Contradict our objective of self - reliant growth based on locally available technology and, , resources., 3., , GATs, , The Agreement on GATS too will favour the developed nations more. Under GATS, agreements, the member nations have to open up services sector for foreign companies., he developing countries including India have opened up services sector in respect of, Danking, insurance, communication, telecom, transport etc. to foreign firms. The domestic, nfms of developing countries may find it difficult to compete with giant foreign firms due, tO, , lack of resources &, , 4 Barriers, , professional skills., , everal countries have put up trade barriers and non -, , taritt barriers following, , the, , ation of WTO. This has affected the exports from developing countries. The Union, , Com, omerce Ministry, , has identified 13 different non - tariff barriers put up by 16 countries, , agais t India. Various Indian products have been hit by non-tariff barriers. These include, n, e S , marine products, floriculture, pharmaceuticals, basmati rice, carpets, leather, g0ods etc. MFA (Multi - fibre arrangements) put by USA and European Union is a major, Darrier for Indian, textile, , Agreement, eT, , exports., , On Agriculture (AOA), , AOA is biased in favour of developed countries. The issue of food security to, , p i n g countries is not addressed adequately in AOA. The existence of global

Page 6 :
Introduction, , to Business (P'aper-l) (E.Y.B.Com )Sem., , SP'SP'S, , 66, , c o u n t r i e s can atford to b, that the poor, not, imply, does, surpluses of food grains, e Bala, Balancenof, would adversely affect the, food, grains, item like, dependence o n necessary, , Payment position, Structure, , of WTo, , Inequality within the, structure of, There is inequality within the, countries., amendments are in favour of developed, 5., , all WiO, , 6., , because, , WTO, , the, , agreements, have, , The member countries, , their level of economic development., agreements irrespective of, , LDC Exports, and, , provide duty free, Many, countries., access to all products originating from least developed, member nations have, , agreed, , -, , to, , quota, , India, , -, , to, , and, , toaccept, , free, , :, , markat, , Will have to no, , bear the adverse effect of competing with cheap LDC exports internationally. Moreover, , LDC exports will also come to the Indian market and thus compete with domesticall, , produced goods, 7., , Foreign exchange burden, Above all, since foreign firms are allowed to remit their profits, dividends and, it will cause foreign exchange burden for India., to their, , parent company,, royalties, TRADING BLOCS, , A trading bloc is a group of countries within a geographical region that associate to, , promote and manage trade activities. Trading blocs are formed to encourage trade of, goods and services among members and to establish a collective bargaining force against, non members., , This kind of regional economic integration has intensified over the years. European, union, NAFTA, OPEC, ASEAN, SAARC etc. are some of the prominent trading blocs., , Objectives of trading blocs, The mairn objectives of trading blocs are:, To remove trade restrictions among participating nations, To improve political, social and cultural relations amorng member nations througn, improved trade ties, To promote growth of the region as a whole through co-operation of member, Countries, , To encourage open transfer of resources i.e. raw materials, labour & capital, between nations, , To establish a collective bargaining force against non-members, To levy common tariffs and other barriers against non-members, To, , provide, , assistance to member countries with, , trade, To, , promote economic growth, , marketing of goods, Important trading blocs, 1., European union (EUU), , European, , of the, , special reference, , region through, , mass, , to, , internationd, , production a, , union is one of the, largest and the most important trading blocs. Tt w, established as European common market, by the Treaty of Rome in 1957. I", founder members were France, West, Germany, Italy, Belgium, Netherlands aand, The, initial, aim was to create a, Luxembourg., single market for goods, services, cap a,, and labour by, barriers, to, trade and promoting free trade, elinminating, between memDe, In 1973, UK, Denmark and Ireland, this, bloc. Today it is known, joined, European Union and the members are now 27. The trading, main objective of EU is to, have, single market for gRods and servicer uithn, , originally

Page 7 :
Busiiess EMoiI,, , SP'S', At presernt,, EU 1S the largest, resent, EU, trading bloc in the world. It has removed most trade, is the world's largest, iers. It, exporter. The, has also estab, ablished a European, has a, mmon currency, and a common central, bank., 67, , union, 'EURO', par onstitutes India's largest, trading partner. The European unification also, tremendous trad, ortc, opportunities tor non-European firms., However, it also create, as European countries will, , P a r l i a m e n t . I, , grow bigger and, The EU, rld's largest trading bloc, and second largest economy,more, after competitive., the USA., , 1s the, , Some of the activities of EU include:, Elimination of custom duties, quantitative restrictions with regard to export ana, , import, , Establishment of a, , common custom, , tariff &commercial policy., , Abolition of all obstacles for movement of persons, services & capital, , .Application of programmes in order to coordinate the economic policies, North American Free l rade Agreement (NAFTA), NAFTA is an agreement signed by the governments of Mexico, USA and Canada,, creating a trilateral trade bloc in North America. The agreement came into force on, , 454, lanuary 1, 1994. NAFTA created the world's largest free trade area, whichNAFTAlinks, milion people producing $17.2 trillion worth of goods and services. countries.aims at, now, , eliminating all trade barriers and investment restrictions among the three, USA is, NAFTA is one of the largest and most important trading blocs of the world., i.e. EU and NAFTA, the largest buyer of Indian goods. The two leading trading blocs, 50 percent of world trade., Oil and Petroleum Exporting countries (OPEC), , account, , 3., , for, , by, countries. It w a s founded, organisation of petroleum exporting, and, to, were, unify, Its basic objectives, Kuwait, Saudi Arabia and Venezuela., states with technical, in 1960, , It is, , Iran,, , over, , an, , Iraq,, , petroleum policies and, , cO-ordinate member's, , provide, , to, , member, , oil production policies in order, member countries coordinate their, of, oil producers achieve a reasonable rate, to help stabilize the oil market and to help, oil c o n s u m e r s, is also designed to e n s u r e that, return on their investments. This policy, countries., oil. At present, it has 11 member, continue to receive stable supplies of, oil and 16%, about 40% of the world's crude, OPEC member nations currently supply, , and economic aid., , The, , of natural gas., , the, rate. Further, it aims to manage, a reasonable, achieve, to, oil producers, OPEC, This helps in avoiding, oil orn the world market., of, the, set, price, of oil in an effort to, and purchasing countries., economies of both producing, the, affect, ctuations that might, of export to OPEC countries., in India's share, continuous increase, , helps, , pply, , OPEC region., here has been a, Indian goods in the, main market for, Arabia, is, the, aua, co-operation (SAAR, "South, , Asian, , AARC is, , operat, Aesia n, , It, , Association, , an, , economic, , for, , Regional, , integration of, , south, , 8, 1985. It, Pakistan and, Nepal,, India, Maldives,, , December, was established on, , ngladesh, Bhutan,, , CoAsian countries for Regional, of South, consists of s e v e n nations, Sri Lanka., , to work, , Asia, the peoples of South, the, , together in, , a, , spirit, , and, ARCprovides a, process, accelerating, at, aims, understanding. It, tocus o n working, Sndship, trust and, countries specifically, SAARC, so0, member states., eve, and rural development,, platform for, , elopment in, , tooot, , together areas, in areas, , telec mmunications, ns, , members, , SAPTAgned, ), , for, , the, , of, , science, , and, , and, , postal, , an agreement, , promotion, , services, , called, , of free, , technology,, as, , and, , agriculture, , tourism, , the South, , Asian, , trade in the region., , and, , ot economic, , SAARC, sports. In 1995,, Trade Agreement, , Preferential

Page 8 :
68, , SP'SP', SAPTA, , Introduction, , to, , Business, , (Paper-) (F.Y.B.Com.) (Ses, Sem.-, , 11 April 1993 at the seventh SAARC summit held in Dhal., came into force in, December 1995. The Agreement, which was signed by all the se, SAARC countries, provides a framework for the exchange ot trade, seven, concessions amono:, was, , signed, , on, , and, , member countries. It also creates a mechanism for, negotiations in successive stages.the, establishing trade preferences to promote trade and economic cO-operation amone th.for, member countries. SAPTA covers, arrangements in the area of taritts, para-tariff and n, tariff, direct trade measures including medium and long-term contracts and, sectol, , agreements., 5., 5. Association of South East Asian Nations (ASEAN), The ASEAN is a regional trading block of South east Asian countries., It, established in 1967 at Bangkok. Its member are Malaysia, Thailand,, , Indonesia, Philippines, Brunei, Darussalam, Cambodia, Laos, Myanmar, , The original objective of ASEAN was to, collectively, the regions from China. Thus, its focus was, , respond, , to the, , was, , Singapore., , and, , Vietnam,, , communist threat in, , political., , However, after 1976 it has shifted its focus to economic co-operation. lt now aims at, promoting economic interdependence among member countries. ASEAN is no, emerging as a major force in the world trade. It has emerged as an important vehicle for-, , coordinating investments policies and developing common programmes for increasing, investment flows. The focus on investment policies is to reduce regional competition for-, , investment among member regions., Preferential tariff treatment is given on products traded among member countries. It, also helps developing countries to attract foreign investors and FDI., , IMPACT OF TRADING BLOCS, POSITIVE IMPACT, , Trading blocs have played a positive role in the development of international trade., This can be justified as under:, , 1., , Increase in trade, , The policies and systems of trading blocs have facilitated trade creation. They, eliminate trade barriers and encourage free trade among the member countries. This has, increased export and import activities of member nations as well as their trade revenues., , 2., , Competition, The formation of a trading blocs leads to intense competition between firms of the, , entire bloc. Due to intense competition, the efficiency of the firms improves. This leads to, reduction in prices and improvement in quality. As a result, the final beneficiaries are the, consumers., , 3., , Economies of Large Scale, d, , Due to economic integration, there can be economies of large scale production anu, distribution. Firms in the region try to specialize in those goods and services which the, , are more capable of producing. This leads to large scale production and distributio, rtly, , which in turn brings economies of large scale. The economies of large scale are par, passed on to the consumers in form of lower prices., 4., , Economic Growth, , The formation of a trading bloc can increase economic growth of the region. Due, reduction of trade barriers, firms in the region would be in a position to produce goods, a lower price. This would increase demand, which in turn would lead to large st, production. The increase in production of goods and services may lead to econon, growth in the region.